What the health care fight means for people who hope to retire early

For those of us who are close to early retirement, or already there, the recent Senate machinations around health care have been extremely consequential, dictating and potentially increasing what we’ll all be paying for health insurance beginning as soon as January.

This is something we care a great deal about, given that we’re pulling the plug on employer-provided coverage in five months when we retire early.

Efforts to repeal the Affordable Care Act (ACA), also known as Obamacare, are over… for now.

Regardless of personal politics and what they might think about Obamacare, most early retirees or soon-to-be early retirees we’ve heard from have expressed a simple desire to know what to plan and budget for, and unfortunately, that’s still not entirely clear, at least not in the long run.

But let’s take a look at where we are at this moment — what we now know, and the many things we still don’t know, about health care for those of us who are still years from qualifying for Medicare at age 65.

What we know now about early retiree health care

For now, the ACA remains intact, which means a number of things for everyone, not just early retirees.

First, the requirement on covering the 10 essential health benefits remains in place. This means every health insurance plan must cover a preventive care visit regardless of how high a plan’s deductible is, along with prescription drugs, in- and outpatient care, mental health care, pregnancy and neonatal care, pediatric care include vision and dental benefits, among others.

Second, the individual mandate remains technically in place, though it’s looking unlikely that anyone will be enforcing it for the time being. From a risk perspective, the more people with insurance, the lower the cost for everyone, and a de facto lack of mandate could increase premiums across the board.

Third, most people will continue to have access to health insurance via the national or state health care exchanges. There are a few states and counties where the exchanges have been forced into collapse, but overall, analysis shows that the exchanges and markets are stabilizing.

Fourth, protections on coverage for pre-existing conditions remain in place. The most recent versions of the Senate bill would have pushed the decision on requiring this coverage to the states via a waiver process, but for now, no one can be denied health coverage or have specific care denied because of pre-existing conditions.

Fifth, the Medicaid expansion remains in place, which means that residents of states that expanded Medicaid, and a lesser number of people in non-expansion states, will continue to have access to public plans. And related, the idea of health insurance subsidies based on income remains technically intact for people whose income goes up to 250 percent of the federal poverty level, though this is complicated. (Keep reading.)

What we don’t know — and may not know for a long time — about early retiree health care

Despite a seemingly status quo outcome of the most recent legislative debates, the White House has signaled an intent to “let” the ACA fail (”let” in quotes because it actually means force it to fail by taking actions detailed below). Which throws into question a lot of what otherwise would be knowable for early retirees relying on exchange coverage.

The main unknowns revolve around two key outstanding questions:

• Will insurers continue to offer plans on the exchanges in most states?

• What will costs be for those purchasing exchange plans, including many early retirees?

Insurers offering exchange plans

Given the recent stabilization in the insurance markets, most insurers have signaled that they intend to stay in the exchanges — so long as conditions remain favorable for them to do so. And that’s the big question. From the insurers’ standpoint, they want as many healthy people to have insurance as possible, to spread out risk, and they need the continuation of direct payments they currently receive (”cost-sharing reduction payments” or CSRs) to cover low-income people (what most people call the ACA subsidies), so that they don’t lose money. So the stability of the exchanges hinges on two questions:

1. Will the individual mandate be enforced?

2. Will direct CSR payments to insurance companies continue?

Along with the current administration signaling that it won’t enforce the individual mandate, meaning the IRS won’t impose tax penalties on those who don’t have insurance, there’s significant question about the payments to insurers. First, Trump has continually said he intends to discontinue subsidy payments, which he has unilateral authority to do following a lawsuit by the House of Representatives during the Obama administration about the legality of non-appropriated payments. If the payment funding ceases, which could happen at any time, experts predict insurance plans will flee the exchanges en masse, forcing early retirees and anyone else without employer-provided health coverage to pay full rack rate for insurance directly through the insurance companies.

All of that said, efforts to repeal and replace the ACA have grown increasingly unpopular, with a majority of Americans now saying they don’t support the recent efforts. So we’ll have to wait and see if the folks in charge decide to go against public opinion, which could risk a political price.

Costs for exchange plan enrollees

The questions facing insurers directly impact the costs that early retiree and other would-be exchange plan enrollees will undertake for care. If the lack of an enforced mandate and subsidy payments force insurers out of the exchanges, then we’ll all have fewer options, and costs will increase for everyone, whether you have an employer-provided plan or an exchange plan. In addition, the question of cost-sharing subsidies and to what degree they will be funded has a massive and direct impact on many of us, given that a lot of early retirees plan for a low income in retirement, which would qualify them for cost-reduction subsidies which reduce premiums and out-of-pocket limits under the current structure. Overall, 84 percent of exchange plan enrollees receive some form of advance premium tax credit or subsidy, so this is not a small-scale question.

For early retirees living frugally on a small income, the best feature of the ACA has been the predictable and reasonable out-of-pocket limits imposed by it. So while in our case, we would have been fine budgeting more for monthly premiums and copays, being able to know with certainty that sudden illness or an accident wouldn’t wipe us out is priceless, because the subsidized silver plans have reasonable out-of-pocket maxes.

Bottom-line uncertainty: While coverage for the 10 essentials and pre-existing conditions seems solid for the moment, what the costs for early retirees will be as early as January, and what options we’ll all have available in terms of insurers and plans, is still completely unclear. We know what the current law says those answers should be, but that means very little at the moment.

So the limbo continues.

What this means for us

Last year, when it seemed likely that the ACA would remain in place, we did a great deal of planning for our future health care, including determining ways to keep our spending low in retirement, therefore keeping our passive income needs low, which would reduce our health insurance premiums. (You can use this basic calculator to do simple calculations at different income levels based on your situation to figure out your optimal income level for health coverage, though all of this could change any day.)

While it wasn’t the driving factor in paying off the house, the desire to keep our income low for health coverage was one of the factors. Reducing our taxable income without hurting our cash flow is another reason we haven’t practiced tax-loss harvesting. If we reduced our cost basis on our shares, then when we go to sell them, the amount on which we are taxed, and the ultimate amount calculated as income, would become larger, which would directly increase our health care costs. So we’ve opted to pay a bit more in tax now by not harvesting losses, in favor of paying less for health care later (and also in favor of paying some of that forward, what we think of as prepaying for our future health care).

Of course, now it’s entirely unclear whether any of that logic will still help us. But the ACA remaining intact at least gives us clarity on one thing:

Come January, when we retire, we will opt for an exchange plan rather than purchasing COBRA through my current employer.

My COBRA plan is costly, and even if the subsidies disappear entirely, a fully rack rate plan in which we can choose the coverage levels and limits will be cheaper than COBRA on my company’s plan. And if the exchanges collapse, then we’ll buy a private insurance plan directly from an insurer.

So we know where we’ll get our insurance, but we are still on pins and needles about how much it will all cost. As anyone planning for retirement knows, whether it’s early or traditional retirement, it’s awfully hard to budget for infinity.

There’s still plenty that could change, and Congress could still decide to take another stab at ACA repeal. But for now, early retirees had a little more certainty than we had a week or two ago.

This column was updated and published with the permission of Our Next Life — “What we know — and still don’t know — about early retirement health care”